Increasing Risks in the Banking Sector as Debt Reaches New Heights in August 2013

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Increasing Risks in the Banking Sector as Debt Reaches New Heights in August 2013

CEIC Russia Data Talk: The volume of loans extended by credit institutions in the Russian economy reached record high of RUB 38.71 trillion in August 2013, distributed as corporate loans (59%), personal loans (24%), banking loans (14%) and other loans (3%). Corporate loans have been declining as a share of total loans, while personal loans have consistently increased during the past ten years.
Total loans grew by 20.3% year-on-year in August 2013, which is representative of the average year-on-year growth rate for the previous 12 months. The highest growth was observed in personal loans (32.5%) and banking loans (30.9%). This trend partly reveals growing post-crisis consumer confidence, increased household spending and relaxed loan requirements from commercial banks, but unfortunately it is also associated with growing banking debt and risks. At the same time, while still increasing in net terms to RUB 22.86 trillion, corporate loans grew by only 13% year-on-year in August 2013. This represents a slowdown from the 21.5% average growth rate observed in 2012. Positively, it is indicative of the restraints in corporate spending and the decrease in debt levels in the short term. On the negative side, slower growth in the corporate sector hints at an economic slowdown in terms of fewer investment programmes.
Overdue loans also reached their historical peak of RUB 1.38 trillion in August 2013, which still comprises only 3.6% of the total loans extended. The increasing number of total loans and the decreasing number of bad loans over the past three years were due to measures taken involving stricter banking regulations and risk assessment. The major contributors to overdue loans in August 2013 were unpaid corporate loans (69.9%) and personal loans (29.6%), with the latter showing an increasing trend in the total share over the years.
In terms of year-on-year growth, overdue loans bottomed at 6.9% in August 2013, gradually decreasing from a peak of 20.6% in April 2012. This positive dynamic is due to a significant reduction in the year-on-year growth of overdue loans in the corporate sector since November of last year, which became negative in August for the first time since July 2011, falling to -0.5%. The fall of overdue corporate loans to RUB 965.9 billion is mostly attributable to reduced financial risks in the corporate sector in the short term. However, personal loans and banking loans contributed to the negative outcome in total overdue loans, with 29.1% and 41.5% year-on-year growth respectively. This is a tremendous jump from the previous year growth rates on overdue loans in both sectors, which were close to 6.8% in August 2012. Such a situation creates potential risks in the banking and personal loan sectors.
By Alexander Dembitski - CEIC AnalystDiscuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription.
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